House votes to make tax cut permanent

Thursday, April 18, 2002

CURT ANDERSON

AP Tax WriterWASHINGTON (AP) -- Pounding away at political themes for the fall elections, Republicans on Thursday pushed through the House a bill they said would bolster the economy and restore taxpayer certainty by making last year's huge tax cut permanent.

Democrats called it an unwise raid on Social Security that would increase government debt, but the GOP majority prevailed on a largely party-line 229-198 vote.

Since Senate Majority Leader Tom Daschle, D-S.D., is vowing to block the measure in the Senate, both sides said its real impact is showing clear economic differences between the parties for voters.

House Minority Leader Dick Gephardt, D-Mo., called it "the definitive vote in this Congress on the future stability and security of Social Security." Republicans were just as eager to portray Democrats as advocates of higher taxes if the tax cuts expire as scheduled at the end of 2010.

"If you're looking for a fundamental debate between the parties, I think you've seen it," said Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee.

Democrats contend the tax cut is largely to blame for draining much of the government's budget surplus, meaning the $374 billion cost of extending the package through 2012 would be financed by Social Security, in which a surplus still exists.

Although the Social Security money would have to be repaid when needed for benefits and the transfer would have no impact on the level of retiree benefits, the program remains a potent political weapon -- particularly among older voters.

Led by President Bush, Republicans claim Democrats are advocating a massive tax increase that would drag down the economy if the package of cuts is allowed to expire on Dec. 31, 2010, as it will under current law. That would bring back pre-2001 income tax rates, resurrect the estate tax, cut the child tax credit in half and reduce or eliminate a number of other tax benefits.

"Democrats might want this automatic tax increase, but I think that is irresponsible," said House Speaker Dennis Hastert, R-Ill. "This automatic tax increase will play havoc with the lives of the American people."

Given the Senate Democratic opposition, House Republicans say they will likely stage votes on making individual parts of the tax cut package in the months leading up to the November congressional election.

Democrats also contend that in the decade after 2012, the cost of the tax cuts will balloon to at least $4 trillion counting interest and assuming certain necessary tax changes. Republicans say the tax cuts will ensure a robust economy that will generate plenty of revenue for the government.

The tax cuts will expire because of an obscure Senate budget rule, named for veteran Democratic Sen. Robert Byrd of West Virginia, effectively forbidding any legislation that would worsen the deficit, or reduce the surplus, that is projected beyond the budget's 10-year window.

Conveniently for sponsors, this rule kept the cost of the bill at the $1.35 trillion figure required by last year's budget and ensured the tax cut needed only a majority of 51 votes instead of 60 to pass the Senate.

Federal Reserve Chairman Alan Greenspan told Congress on Wednesday that most businesses are making investment decisions on the assumption that the tax cuts will be extended at some point. Yet Greenspan, too, said it would be better for the economy if the situation were clarified, particularly in such areas as the estate tax -- which would be repealed in 2010 only to resurface in 2011.

"I think it has to be clear where the longer-term tax structure in this area is," Greenspan told the Joint Economic Committee. "Wherever the Congress comes out, I think it's far more important that it come out clearly and unequivocally, and not have an issue pending ... an issue which would create a degree of uncertainty."